Cisco buys Arroyo -- a back-end TiVo -- and is now really in your living-room
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We've written about Arroyo several times before: It is kind of like a giant TiVo located in the cable operator's network, as opposed to being in the home -- effectively giving consumers access to thousands of hours of programming without needing to schedule recording.
The two main guys leading Cisco's ruckus in the living-room are pictured below. They are Ned Hooper, who is head of Cisco's biz dev, at left, and his right-hand man, Charles Carmel, standing in back. (Courtesy of Merc photographer Karen Borchers, who took the photo back in June, when we wrote this post. and linked to a bigger story about the Cisco campaign to takeover your living-room).
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| Cisco's Ned Hooper, Charles Carmel |
Arroyo has raised around $27 million in VC funding from firms like Foundation Capital, Comcast Interactive Capital, DCM-Doll Capital Management, Matrix Partners and Time Warner Investments. Here is the Mercury News story about the today's Arroyo deal and what it means.
We mentioned back in July that Cisco was looking at the Arroyo, once Motorola snapped up a related video server company, Broadbus. Mountain View's Kasenna, which raised $15 million more than two years ago, is also offering a similar technology.
Update: There's a snap analysis in comments, about how much investors made on this deal.
http://www.siliconbeat.com/cgi-bin/mt331/mt-tb.cgi/2027
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Setting aside for the moment the strategic questions re: technology and Cisco's plans, it's worth considering the financial returns for the investors and employees in light of the recent discussion on Crescendo and Worldview's travails.
Arroyo raised $25M+. Series A (including angels) about $13M closed around Jan'04, Series B $12M in Mar'05. After three+ years of work, the exit was for $72M total. Those are the (rough) facts.
This part is a bit speculative though tied with the above facts and general investor terms, it has some basis as well. With a $72M exit Arroyo's Series B investors get approx 2X over 14 months and Series A gets approx 3X-4X over 36+ months, which is a decent return. After investors liquidation preferences and such it's unclear what employees got but it doesn't look like gazillions.
There were some changes at the CEO level before they brought in the current CEO to position the company for an exit. Worth keeping an eye out for CEO's carve-outs as it is a little-reported (mal)practice that VCs and compliant executives engage in at the cost of other shareholders.
sunlite on August 22, 2006 10:48 AMComment link
Errata: Exit was $92M, not $72M. Rest of logic/analysis applies.
sunlite on August 22, 2006 10:57 AMComment link
Some fun financial analysis on this deal.
Exit less money in, which is returned to investors first, is ($92M minus $27M) which leaves $65M for distribution.
Assume Series B got 1.5X returns on their $12M investment. That leaves $65M-$18M = $47M for others.
Assume Series A got 2.25X on their $15M investment. That leaves $47M-$34M = $13M for common shareholders (founders, management, employees, consultants, etc.)
Here's the "fun" part. The CEO and his select crony executives get their pound of flesh carved out for them before anyone else. Assume that takes out $5M. $13M-$5M is $8M for the remaining 40+ individuals including founders, other executives, employees and other common shareholders.
Looks like the investors made a decent return, the CEO (and other compliant executives that got carve-outs) can laugh to the bank, and the employees and founders have to continue working for a living.
Now you can understand why some CEOs pipe up to support VCs (who in return dish out carve-outs).
Note: the numbers get bleaker if you assume the Series B demanded a 2X and the Series A a 3X return on their investments, which is customary.
NumberCruncher on August 22, 2006 5:13 PMComment link
